Suppose your firm owns a retirement development that is composed of a gated housing community and a championship level private golf course designed to appeal to retirees that are avid golfers. The development is somewhat isolated and there are no other golf courses within easy driving distance. Obviously, one of the main revenue sources for your company is golf course operations. Suppose the annual individual demand for avid golfers is represented by the following inverse demand function (Q is in annual rounds played): P=100-1.250 Most of the cost to maintain the golf course is fixed in the sense that it is not related to the number of rounds played. Your firm has estimated that the variable cost per round is the result of the cost of leasing and maintaining golf carts and is $20 per round. That is, the variable cost function is: VC (O) = 200 a. If your firm decides to charge a single price per round of golf, what price should it charge and how many rounds of golf can you expect an avid golfer to play each year? b. Ignoring the fixed costs of operation, how much profit would your firm earn from each avid golfer under this pricing scheme? Having had managerial economics, you suggest that rather than a single price per round played, your firm could charge an annual membership fee for the golf course and charge a fee per round played to cover the cost of leasing and maintaining the golf carts. c. Again, ignoring fixed costs, what price should you charge for a round of golf and how many rounds would the avid golfer play per year? d. How much should you charge for the annual membership fee for the course? e. What profit per avid golfer do you anticipate earning using this scheme? f. If the annual fixed cost of golf course operations is $1,000,000. How many memberships must you sell to avid golfers under this scheme in order be willing to operate the course?
Suppose your firm owns a retirement development that is composed of a gated housing community and a championship level private golf course designed to appeal to retirees that are avid golfers. The development is somewhat isolated and there are no other golf courses within easy driving distance. Obviously, one of the main revenue sources for your company is golf course operations. Suppose the annual individual demand for avid golfers is represented by the following inverse demand function (Q is in annual rounds played): P=100-1.250 Most of the cost to maintain the golf course is fixed in the sense that it is not related to the number of rounds played. Your firm has estimated that the variable cost per round is the result of the cost of leasing and maintaining golf carts and is $20 per round. That is, the variable cost function is: VC (O) = 200 a. If your firm decides to charge a single price per round of golf, what price should it charge and how many rounds of golf can you expect an avid golfer to play each year? b. Ignoring the fixed costs of operation, how much profit would your firm earn from each avid golfer under this pricing scheme? Having had managerial economics, you suggest that rather than a single price per round played, your firm could charge an annual membership fee for the golf course and charge a fee per round played to cover the cost of leasing and maintaining the golf carts. c. Again, ignoring fixed costs, what price should you charge for a round of golf and how many rounds would the avid golfer play per year? d. How much should you charge for the annual membership fee for the course? e. What profit per avid golfer do you anticipate earning using this scheme? f. If the annual fixed cost of golf course operations is $1,000,000. How many memberships must you sell to avid golfers under this scheme in order be willing to operate the course?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose your firm owns a retirement development that is composed of a gated housing
community and a championship level private golf course designed to appeal to retirees that are
avid golfers. The development is somewhat isolated and there are no other golf courses within
easy driving distance. Obviously, one of the main revenue sources for your company is golf
course operations. Suppose the annual individual demand for avid golfers is represented by the
following inverse demand function (Q is in annual rounds played):
P=100-1.250
Most of the cost to maintain the golf course is fixed in the sense that it is not related to the
number of rounds played. Your firm has estimated that the variable cost per round is the result of
the cost of leasing and maintaining golf carts and is $20 per round. That is, the variable cost
function is:
VC (Q) = 200
a. If your firm decides to charge a single price per round of golf, what price should it charge
and how many rounds of golf can you expect an avid golfer to play each year?
b. Ignoring the fixed costs of operation, how much profit would your firm earn from each avid
golfer under this pricing scheme?
Having had managerial economics, you suggest that rather than a single price per round played,
your firm could charge an annual membership fee for the golf course and charge a fee per round
played to cover the cost of leasing and maintaining the golf carts.
c. Again, ignoring fixed costs, what price should you charge for a round of golf and how many
rounds would the avid golfer play per year?
d. How much should you charge for the annual membership fee for the course?
e. What profit per avid golfer do you anticipate earning using this scheme?
f. If the annual fixed cost of golf course operations is $1,000,000. How many memberships
must you sell to avid golfers under this scheme in order be willing to operate the course?
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